Question 1

Cost-volume-profit analysis is a precise tool for perfectly predicting the profit consequences of cost changes, price changes, and volume changes.

Accepted Answer

A) True 
 B)False

Question 2

Describe what happens to the net income of a company under each of the following assumptions: (a) Sales volume is less than break-even sales. (b) Sales volume is greater than break-even sales. (c) Sales volume is equal to the break-even point.

Accepted Answer

(a) If the sales volume is less than the

Question 3

The Haskins Company manufactures and sells radios. Each radio sells for $23.75 and the variable cost per unit is $16.25. Haskin's total fixed costs are $25,000, and budgeted sales are 8,000 units. What is the contribution margin per unit?

Accepted Answer

A)  $7.50. 
B)  $16.25. 
C)  $23.75. 
D)  $60,000. 
E)  $1.25. 
A)  $7.50. 
B)  $16.25. 
C)  $23.75. 
D)  $60,000. 
E)  $1.25.

Question 4

Narrows Co. is considering the production and sale of a new product line with the following sales and cost data: unit sales price $125; unit variable costs $75; and total fixed costs of $140,000. Calculate the break-even point:
(a) In units.
(b) In dollar sales.

Accepted Answer

(a) Break-even point in units

Question 5

The excess of expected sales over the sales level at the break-even point is known as the:

Accepted Answer

A)  Sales turnover. 
B)  Profit margin. 
C)  Contribution margin. 
D)  Relevant range. 
E)  Margin of safety. 
A)  Sales turnover. 
B)  Profit margin. 
C)  Contribution margin. 
D)  Relevant range. 
E)  Margin of safety.

Question 6

The difference between sales price per unit and variable cost per unit is the:

Accepted Answer

A)  Gross profit from sales. 
B)  Gross margin per unit. 
C)  Fixed cost per unit. 
D)  Margin of safety per unit. 
E)  Contribution margin per unit. 
A)  Gross profit from sales. 
B)  Gross margin per unit. 
C)  Fixed cost per unit. 
D)  Margin of safety per unit. 
E)  Contribution margin per unit.

Question 7

The margin of safety is the excess of:

Accepted Answer

A)  Break-even sales over expected sales. 
B)  Expected sales over variable costs. 
C)  Expected sales over fixed costs. 
D)  Fixed costs over expected sales. 
E)  Expected sales over break-even sales. 
A)  Break-even sales over expected sales. 
B)  Expected sales over variable costs. 
C)  Expected sales over fixed costs. 
D)  Fixed costs over expected sales. 
E)  Expected sales over break-even sales.

Question 8

Wilson Co. is preparing next period's forecasts. Total fixed costs are expected to be $300,000 and the contribution margin ratio is expected to be 30%. The applicable income tax rate is 25%.
(a) Calculate the company's break-even point in dollar sales.
(b) If sales are $1,800,000 above the break-even point, what will income be (i) pretax income and (ii) after-tax income?

Accepted Answer

The answer of Wilson Co. is preparing next period's forecasts....

Question 9

Define the break-even point of a company.

Accepted Answer

The break-even point of a company is the

Question 10

The following information describes a product expected to be produced and sold by Pepin Corporation:
Required:
(a) Calculate the contribution margin per unit.
(b) Calculate the break-even point in units.

Accepted Answer

(a) Contribution margin = $32

Question 11

Total variable costs change proportionately with changes in output activity.

Accepted Answer

A) True 
 B)False

Question 12

Outback Products reports the following information:
Required:
(a) Calculate Outback Products' degree of operating leverage (DOL).
(b) Outback Products forecasts a 6% increase in sales. What is the expected effect in percent on pretax income?

Accepted Answer

(a)
Degree of operating levera

Question 13

Cost-volume-profit analysis provides approximate, but not precise, answers to questions about costs, volumes, and profits.

Accepted Answer

A) True 
 B)False

Question 14

Kelley Company and Mason Company each have sales of $200,000 and costs of $140,000. Kelley Company's costs consist of $40,000 fixed and $100,000 variable, while Mason Company's costs consist of $100,000 fixed and $40,000 variable. Which company will suffer the greatest decline in profits if sales volume declines by 15%? Prepare income statements and compute degree of operating leverage to assess.

Accepted Answer

Since Mason's degree of operat

Question 15

Cost-volume-profit analysis is frequently based on the assumption that the production level is the same as the sales level.

Accepted Answer

A) True 
 B)False

Question 16

The relevant range of operations includes extremely high and low levels of production that are unlikely to occur.

Accepted Answer

A) True 
 B)False

Question 17

Bristol Company's contribution margin income statement is presented below. Sales for the current period consisted of 7,500 units. Compute the company's break-even point in (a) units, and (b) dollars. Compute the margin of safety in (c) dollars and (d) percent.

Accepted Answer

Per unit costs:
Sales price = $225,000/7

Question 18

A CVP graph presents data on:

Accepted Answer

A)  Profit and loss on a per unit basis. 
B)  Profit, loss, and break-even on a total dollar basis. 
C)  Profit, loss, and break-even on a per unit basis. 
D)  Only profit and loss on a total basis. 
E)  Profit and loss on a budget and actual basis. 
A)  Profit and loss on a per unit basis. 
B)  Profit, loss, and break-even on a total dollar basis. 
C)  Profit, loss, and break-even on a per unit basis. 
D)  Only profit and loss on a total basis. 
E)  Profit and loss on a budget and actual basis.

Question 19

An important tool in predicting the volume of activity, the costs to be incurred, the sales to be earned, and the profit to be received is:

Accepted Answer

A)  Target income analysis. 
B)  Cost-volume-profit analysis. 
C)  Least-squares regression of costs. 
D)  Variance analysis. 
E)  Process costing. 
A)  Target income analysis. 
B)  Cost-volume-profit analysis. 
C)  Least-squares regression of costs. 
D)  Variance analysis. 
E)  Process costing.

Question 20

The high-low method can be used to derive an estimated line of cost behavior.

Accepted Answer

A) True 
 B)False

Exam 22: Cost-Volume-Profit Analysis

Cost-volume-profit analysis is a precise tool for perfectly predicting the profit consequences of cost changes, price changes, and volume changes.

Describe what happens to the net income of a company under each of the following assumptions: (a) Sales volume is less than break-even sales. (b) Sales volume is greater than break-even sales. (c) Sales volume is equal to the break-even point.

The Haskins Company manufactures and sells radios. Each radio sells for $23.75 and the variable cost per unit is $16.25. Haskin's total fixed costs are $25,000, and budgeted sales are 8,000 units. What is the contribution margin per unit?

Narrows Co. is considering the production and sale of a new product line with the following sales and cost data: unit sales price $125; unit variable costs $75; and total fixed costs of $140,000. Calculate the break-even point: (a) In units. (b) In dollar sales.

The excess of expected sales over the sales level at the break-even point is known as the:

The difference between sales price per unit and variable cost per unit is the:

The margin of safety is the excess of:

Define the break-even point of a company.

The following information describes a product expected to be produced and sold by Pepin Corporation: Required: (a) Calculate the contribution margin per unit. (b) Calculate the break-even point in units.

Total variable costs change proportionately with changes in output activity.

Outback Products reports the following information: Required: (a) Calculate Outback Products' degree of operating leverage (DOL). (b) Outback Products forecasts a 6% increase in sales. What is the expected effect in percent on pretax income?

Cost-volume-profit analysis provides approximate, but not precise, answers to questions about costs, volumes, and profits.

Cost-volume-profit analysis is frequently based on the assumption that the production level is the same as the sales level.

The relevant range of operations includes extremely high and low levels of production that are unlikely to occur.

Bristol Company's contribution margin income statement is presented below. Sales for the current period consisted of 7,500 units. Compute the company's break-even point in (a) units, and (b) dollars. Compute the margin of safety in (c) dollars and (d) percent.

A CVP graph presents data on:

An important tool in predicting the volume of activity, the costs to be incurred, the sales to be earned, and the profit to be received is:

The high-low method can be used to derive an estimated line of cost behavior.

Accounting in Business

Analyzing and Recording Transactions

Adjusting Accounts and Preparing Financial Statements

Completing the Accounting Cycle

Accounting for Merchandising Operations

Inventories and Cost of Sales

Accounting Information Systems

Cash and Internal Controls

Accounting for Receivables

Long-Term Assets

Current Liabilities and Payroll Accounting

Accounting for Partnerships

Accounting for Corporations

Long-Term Liabilities

Investments and International Operations

Statement of Cash Flows

Analysis of Financial Statements

Managerial Accounting Concepts and Principles

Job Order Cost Accounting

Process Cost Accounting

Cost Allocation and Performance Measurement

Master Budgets and Planning

Flexible Budgets and Standard Costs

Capital Budgeting and Managerial Decisions

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